“…. Financial products and trading strategies are so complex that few people understand them and fewer still understand them enough to bet against them. Instead, they rely on their trading models – what their computers tell them to do.
Unfortunately, these models – even if not identical – are produced by people from similar backgrounds using similar data and similar assumptions, so they tend to predict similar things. When one computer model produces a buy signal, the chances are that many others will as well – so their traders all pile in at once.
What makes it worse is that City rewards are so high that people tend not to stick around long, and that means that those who can remember a complete market cycle are thin on the ground. Thus, there are few around who are prepared to back their judgment against what the computer says.”
Read the full article – Why bubbles will forever be bursting
